HONG KONG, June 14, 2018 (BSS/AFP) – Asian markets mostly fell Thursday
after the Federal Reserve hiked interest rates and signalled a more hawkish
tone for future moves, while US President Donald Trump stoked trade war fears
by suggesting he will hit China with fresh tariffs.
After a keenly watched meeting, the US central bank lifted borrowing
costs, as expected, but indicated another two this year and four in 2019 as
the world’s top economy continues to improve and inflation picks up.
While the Fed had earlier in the year been tipped to announce three
increases each year, there had been growing speculation that it would have to
be more aggressive to keep a lid on prices and prevent the economy from
boiling over.
Policymakers have been forced to change tack to take account of Trump’s
huge tax cuts in December, which have already started to take effect.
But in a statement they stressed that rising rates were unlikely to hit
the economy, which Fed chief Jerome Powell said was “in great shape”.
James McCann, global economist at Aberdeen Standard Investments, wrote in
a commentary: “The (Fed) is now signaling two more hikes this year and has
dropped its increasingly stale signal to markets that rates will remain for
some time below those levels expected in the long term.
“This shift reflects the robust domestic growth backdrop, which is being
fermented by a late-cycle fiscal stimulus.”
All three main indexes on Wall Street ended down on the prospect of higher
borrowing costs, which would affect investment, while the dollar was slightly
weaker as traders had largely priced in further hikes.
– ‘A little bit upset’ –
And Asian markets struggled, with Tokyo ending the morning 0.4 percent
lower.
Hong Kong was down 0.3 percent, with banks lower after the city’s de facto
central bank lifted its own interest rates to keep in line with the Fed. The
HKMA and US central bank’s monetary policies are linked owing to their dollar
peg.
Seoul fell 1.2 percent and Singapore was also off 0.2 percent. Shanghai
dipped 0.2 percent while Sydney eased 0.1 percent.
Eyes now turn to the end of the European Central Bank’s meeting later in
the day, with expectations it will discuss winding in its crisis-era
stimulus.
Trade war fears returned to the fore after Trump warned Beijing of
possible fresh tariffs.
“China could be a little bit upset about trade because we are very
strongly clamping down on trade,” he said in an interview aired on Fox News
Wednesday.
His comments come as he prepares to make a decision Friday on whether to
impose measures on billions of dollars worth of goods from China. “You will
see over the next couple of weeks. They understand what we are doing,” he
said.
There are worries the Chinese side will retaliate.
The comments are the latest in an ongoing dispute with the US’s partners
and come less than a week after he left a Group of Seven summit in tatters
over trade differences.
“Trade is going to be far more unpredictable going forward and so far
markets keep trying to shrug it off as if it isn’t going to happen,” Michael
Every, head of financial markets research at Rabobank Group, told Bloomberg
Television.
“When it finally happens maybe the markets will wake up and realise, wow,
this is actually happening.”
– Key figures around 0230 GMT –
Tokyo – Nikkei 225: DOWN 0.4 percent at 22,886.15 (break)
Hong Kong – Hang Seng: DOWN 0.2 percent at 30,674.54
Shanghai – Composite: DOWN 0.3 percent at 3,040.6
Euro/dollar: UP at $1.1797 from $1.1786 at 2100 GMT
Pound/dollar: UP at $1.3376 from $1.3367
Dollar/yen: DOWN 110.30 yen from 110.37 yen
Oil – West Texas Intermediate: UP three cents at $66.67 per barrel
Oil – Brent Crude: DOWN 10 cents at $76.64 per barrel
New York – Dow Jones: DOWN 0.5 percent at 25,201.20 (close)
London – FTSE 100: FLAT at 7,703.71 (close)